Beef demand beginning to stage a comeback?

Posted by Daniel Palmer on 11th August 2009

The Australian beef industry is likely to have weathered the worst of the turbulent trading conditions arising from the global economic and financial crises, with early signals that beef demand is now more resilient – according to Meat & Livestock Australia’s (MLA) 2009 Cattle Industry Projections – Mid Year Update.

Domestic and global beef demand was more severely impacted by the economic turmoil over the first half of this year than anticipated, but MLA believes the signs are good for recovery in the back half of the year.

MLA economist Tim McRae highlighted that some of the necessary pre-conditions required to re-ignite demand had started to surface.

“World economic bodies are forecasting improved economic conditions for later this year, beef stocks in key markets are dwindling, lower import prices are starting to be passed through to consumers in Japan, and the Korean market is recovering from the period of instability created by the return of US product,” he advised. “MLA predicts that export demand will start to rally in the second half of 2009, further aided by a seasonal increase in demand from Japan and Korea.”

Some factors could hinder the speed of recovery, however, including the direction of the Australian dollar, the drought in southern areas of the country and the timing of global economic recovery.

“Exporters are still grappling with tight livestock supplies, the appreciating Australian dollar, weak co-product prices and low import prices,” Mr McRae highlighted. “It probably won’t be until 2010 that exports will start to really gather steam, when volumes are forecast to approach the one million tonne swt mark, as the Japanese, Korean and US economies revert to growth.”

“This year’s price peak for cattle is expected to be more restrained than last year’s; however, prices over the latter months are likely to be higher than in 2008.”

Beef and veal production in 2009 is predicted to fall 2.5% on 2008, in contrast to the small rise forecast in MLA’s projections in January – a result of lower than expected feedlot output, lower offer prices, lighter average carcase weights, and improved seasonal conditions encouraging producers to rebuild herds.

Tighter production and an increased portion of beef heading for export markets is expected to see Australian beef consumption fall 5% in 2009. However, over the medium term, consumption is expected to increase, boosted by a recovery in demand and higher beef production. Global demand is likely to move with Australian demand, forcing prices higher.

“The tighter supply of beef globally should continue to put upward pressure on beef prices, with food inflationary pressures returning in the medium term,” Mr McRae concluded.